Embassy Office Park REIT IPO Review: Here Is Why One Should Be Cautious Before Investing

Embassy Office Park REIT IPO, the first ever by a Real Estate Investment Trust of India (REIT), Is finally open for subscription. The Rs 4,750 crore IPO has hit the market today and will remain open till March 20, Wednesday.

After the issue of The REIT, backed by Blackstone and Embassy,  the shares will be listed on the National Stock Exchange and BSE in the first week of April.

Embassy REIT portfolio’s sponsors are Embassy Sponsor and the Blackstone Sponsor. The portfolio comprises seven best-in-class office parks and four prime city-center office buildings totaling 32.7 million square feet (msf) spread across Mumbai, Bengaluru, Pune and Noida as of December 31, 2018.

To invest in the IPO, investors will be required to bid for a minimum of 800 units in the price band of Rs 299-300, i.e. Rs 2.39 lakh to Rs 2.40 lakh. With the indicative yield of 8.25 per cent, the REIT seems to be a good investment for those investors who are looking for better returns than bank fixed deposits in next 5-7 years.

However, the financial experts still believe that the REITs are quite far away from becoming the substitute for fixed deposits and one must be cautious while subscribing.  Here are some of the factors one must keep in mind before investing in Embassy Office Park REIT IPO:

  • Investing in REIT is it is a long-term play, just like holding a property where capital appreciation is as important as rentals. The risks are hence same as holding a property.

“Invest with caution. It is the first experiment,” ET quoted Pranay Vakil, chairman of Pra-ron Consultancy, as saying. “ So, put a small amount and then see how it goes. It does not depend on what interest you are going to get, but the appreciation in real estate, which has been very slow in the last few years.”

  • Do not forget that investors have in the past burnt fingers in two listed InVITs, which are trading below issue prices.
  • One should take the plunge only if one is looking for long-term investment and has the ability to liquidate the investment at the time of his choosing.
  • The REIT’s business is dependent on the economy and financial stability in Indian markets. Any slowdown in the Indian economy or in Indian financial markets could have a material adverse effect on its business.
  • The major chunk of the tenants in the portfolio’s assets is from tech industry, which includes IBM, Cognizant. Any conditions that impact these tech tenants may adversely affect its business, revenue from operations and financial condition.
  • The REIT Regulations impose restrictions on the investments made by it and require it to adhere to certain investment conditions. This may limit its ability to acquire and/or dispose of assets or explore new opportunities.

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